Status of Franchise Businesses and the Conditions for Success
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Status of Franchise Businesses and the Conditions for Success By Keisho Komoto* Economic Research Group komoto@nli-research.co.jp 1. Franchise Businesses Face Unexpected Difficulties Franchise chains (FC) were introduced into Japan in the early 1960s. In franchising, the franchisor agrees to let the franchisee (franchise business or member) use its trademark and business system, and in return usually receives an initial fee and ongoing royalties. The franchisor provides extensive support to the franchisee at startup (such as in site selection and training and development) and on an ongoing basis (such as management guidance). Franchising is currently used in a wide variety of businesses, including convenience stores, fast food, dry cleaning, and even juku cram schools. According to data compiled by the Japan Franchise Association (JCA) since 1983, franchising has been a growth industry, performing particularly well even during the economic recessions of the 1990s (Figure 1). Figure 1 Trends in Franchise Units & Sales, and Nominal GDP (1,000 units; \100 billion) (\ trillion) 250 600 500 200 400 150 300 100 200 No. of franchise units (left) 50 Franchise sales (left) 100 Nominal GDP (right) 0 0 83 85 87 89 91 93 95 97 99 01 03 Sources: Japan Franchise Association, JFA Franchise Chain Statistics; Economic and Social Research Institute, Cabinet Office, Annual Report on National Accounts. But despite the sustained success of the industry as a whole, not all individual franchise members * The author wishes to thank the Institute of Social Science, University of Tokyo for providing access to the Social Science Japan Data Archive (SSJDA) to retrieve individual empirical data of the Survey of New Business Owners Who Lack Relevant Business Experience (NLFC). NLI Research 1 2005.03.22
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